Venture Debt: Financing Growth Without Dilution

Venture Debt is aimed at startups and high-growth companies that have already raised venture capital. It complements existing equity rounds, creates additional financial flexibility, and helps achieve key milestones – without further diluting founders. In this article, you’ll learn how Venture Debt works, what advantages it offers, and which companies it is best suited for.

How does Venture Debt work?

Venture Debt is a subordinated loan typically provided alongside a venture capital round. Investors provide a sum – usually between €500,000 and €10 million – with a fixed term of two to four years and interest rates between 7–12%. Repayments are made either in installments or as a lump sum at maturity. Often, the first months are repayment-free to give the company time to grow.

In addition, investors often receive so-called warrants, i.e. rights to purchase company shares at a fixed price in the future. This makes Venture Debt a hybrid form: it is debt financing with an equity kicker.

Example: A startup raises €5 million in a Series A round. In addition, it secures €1 million in Venture Debt at 8% interest, 36 months term, 6 months repayment-free, and warrants for 1% of the shares.

Advantages of Venture Debt

• No equity dilution: Founders keep their ownership stake, especially between equity rounds.
• Faster availability: Typically negotiated in 4–8 weeks, faster than most VC rounds.
• No new valuation required: Since no new equity is issued, no company revaluation is necessary.
• Extended runway: Provides additional liquidity during uncertain times.
• Positive signaling: A reputable venture debt partner increases investor confidence.

Disadvantages of Venture Debt

• Repayment obligation: Unlike equity, debt must be repaid with interest.
• Covenants and restrictions: Some deals include KPIs, reporting duties, or restrictions that limit flexibility.
• Costs from warrants: While no shares are given up immediately, exercised warrants can lead to dilution later.
• Not universally applicable: Typically requires VC backing, proven business model, and measurable growth.

Venture Debt in Germany and Austria

The venture debt market in the DACH region is growing. In Germany, specialized banks, debt funds, and international providers are active. Some VCs run their own debt vehicles or cooperate with partners. Public programs like Venture Tech (KfW) also exist, particularly for DeepTech startups.

In Austria, the market is smaller, and access often comes through existing VC investors with networks and experience in venture debt.

Conclusion

Venture Debt is not a replacement for venture capital but a strategic complement in growth financing. For founders looking to scale without giving up further equity, it offers a smart alternative.

A solid repayment plan, a stable business model, and transparent terms are essential. Used correctly, Venture Debt helps extend runway, seize opportunities, and reach the next level – without losing control of the company.